China s Age of Abundance: Tracking changes with NTA Analyses

China s Age of Abundance: Tracking changes with NTA Analyses SHEN Ke, Fudan University, China WANG Feng, University of California, Irvine/Fudan University CAI, Yong, University of North Carolina, Chapel Hill For presentation at the 12 th NTA Global Conference, Mexico City, Mexico July 23-27, 218

China s age of abundance: Growth and inequality Per capita GDP (PPP) rose more than 45 times in 35 years, between 198 and 215 Size of economy rose from number ten to number two in the world, and will become the largest Income inequality (Gini) rose from.3 to.46, one of least equal in the world GDP Per Capita PPP 16 14 12 1 8 6 4 2 Income inequality Income growth 198 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Year GDP/P Gini.55.5.45.4.35.3.25.2 Gini Index

Global shifts of income, and China Source: Eduardo Porter and Karl Russel, It s an unequal world. It does not have to be. The New York Times, 12/14/217

Global shifts of income, and China Source: Eduardo Porter and Karl Russel, It s an unequal world. It does not have to be. The New York Times, 12/14/217

Tracking changes with NTA analyses History of NTA in China: Began in 22, updates for 27, 29, 214 Increasing availability of micro-level survey data Three key features of the decade under observation Rapid income growth (quadrupling) and wealth accumulation Emergence of post-socialist welfare regime Accelerating population aging Five faces of change from NTA analysis Income and consumption Life-cycle surplus Public transfers Inequality Fiscal implications

Rising income and age profile (with NTA adjustment) Per capita labor income rose by 35% between 22 and 27, by 53% between 29 and 214 Significant shift in peak earning age, to the left: Age 41, 22 Age 28, 27 Age 3, 29 Age 3, 214 6 5 4 3 2 Per capita labor income, 22-214 Income 22 Income 27 Income 29 Income 214 1 5 1 15 2 25 3 35 4 45 5 55 6 65 7 75 8 85 9

Educational expansion and generational shift (share of urban population with tertiary education) 4% 38.91% 35% 32.53% 3% 25% 23.14% 24.47% 199 2% 15% 1% 5% 11.33% 4.11% 16.66% 9.84% 14.% 8.5% 18.51% 12.78% 11.9% 5.98% 6.8% 7.24% 14.85% 8.83% 13.7% 1.26% 9.77% 7.94% 7.97% 9.17% 8.96% 8.14% 7.4% 2 21 % 16-2 21-25 26-3 31-35 36-4 41-45 46-5 51-55 56-6

Consumption increase (following income increase, with NTA adjustment), China, 22-214 Accelerating consumption growth: Per capita consumption rose: By 25% between 22 and 27 By 55% between 29 and 214 3 25 2 15 Per capita consumption, 22-214 Consumption 22 Consumption 27 Consumption 29 Consumption 214 Disproportional increase in teen years, on education from 15% to 16% of total spending between 29 and 214, and health care from 1.9% to 11.9% 1 5 5 1 15 2 25 3 35 4 45 5 55 6 65 7 75 8 85 9

Where do Chinese spend their growing income, and who pays? (Types of consumption, 214) Public spending on education outspent private spending, rising from 51% to 56% between 29 and 214 Public spending on health care on per capita basis also exceeded private expenditure, rising from 57% to 6% 3. 25. 2. 15. 1. 5. Per capita labor income and consumption, 214 (RMB). 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 edu_pri health_pri other_pri health_pub edu_pub other_pub

Life cycle surplus, China, 22-214 Age range of surplus years: 22: 22 to 58 27: 21 to 56 29: 22 to 57 214: 21 to 56 Increase and slowing down in aggregate surplus: 22-27, 13% (per capita 12%) 29-214, 6% (per capita 5%) 1 8 6 4 2-2 -4 Aggregate (RMB 1 million), 22-214 5 1 15 2 25 3 35 4 45 5 55 6 65 7 75 8 85 9-6 lcd 22 lcd 27 lcd 29 lcd 214

Life cycle deficits and composition: China, 22-214 (aggregate, in 1 million RMB, 29 price) Surplus growth at a slower pace as consumption picks up 3 1 Private consumption increases faster than public consumption (other than education and health care) Private savings rose 4 times, to 17.2 trillion by 214, but slowing down: 16% between 22 and 27, and 4% between 29 and 214 Private asset income rose 4.6 times, to 9.8 trillion by 214, slowing down 2% between 22 and 27, only 2% between 29 and 214 2 1-1 -2-3 -4 22 27 29 212 214 22 27 29 212 214 Public Consumption Private Consumption Labor Income Net transfers Public asset income Private asset income Public saving Private saving Lifecycle Deficit (Right axis) Age Reallocations (Right axis) 75 5 25-25 -5-75 -1

Public transfers: Education (global comparisons) 21 Cuba Significant increase in benefit generosity ratio in five years and in overall spending share, accompanied by declining share of school-age population Benefit generosity ratio level surpassed Latin America but significantly below OECD average in 29 Average public education spending (% GDP per working-age adult) 18 15 12 9 6 3 OECD Mean China214 % of GDP Mexico Brazil 6% China29 Columbia Chile 5% Argentina Costa Rica 4% Uruguay 3% Peru 3 4 5 6 7 8 9 School-age children (% of working-age population)

Public transfers: Health care (global comparisons) 9 Costa Rica 8 Overall health care spending increased due to both higher benefit generosity ratio and slight population aging Health spending much below most Latin American comparisons and OECD average Aggregate public health spending (as % of working age population) 7 6 5 4 3 2 1 Cuba Columbia OECD Mean Mexico Argentina Chile Brazil China214 Uruguay China29 Peru 6 8 1 12 14 16 18 % of GDP 8% 7% 6% 5% 4% 3% 2% Near death population (as % of working age population)

Public transfers: Pensions (global comparisons) 7 Brazil Pension spending increased due to both rising benefit level and population aging Benefit generosity ratio below most Latin American comparisons, and somewhat below OECD average in 29 Average pblic pension spending (% of GDP per working age adult) 6 5 4 3 2 1 Costa Rica Columbia Peru Mexico China29 Chile Cuba China214 Argentina Uruguay OECD Mean 5 1 15 2 25 3 Senior population (% of working age population) % of GDP 1% 9% 8% 7% 6% 5% 4% 3% 2% 1%

Inequalities in public transfers, combined, 214 At almost every age, those in higher income quartiles received more public transfers 3. 25. In education, the ratio between the top and the bottom income quartile groups is 1.2, in health care 1.4, and in pensions for those aged 6 and over almost 9 to 1 With the three items combined, the ratio between the top income quartile group and rest is about two times 2. 15. 1. 5.. 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 q1_214 q2_214 q3_214 q4_214

Inequalities reduced between 29 and 214 (Per capita transfer received relative to quartile one) Education, aged 3-22 3.5 Health Care, aged 6+ 2.5 2 1.5 1.5 2 1.33 1.41 1 1 1.11.99 1.9 Quartile 1 Quartile 2 Quartile 3 Quartile 4 29 214 3 2.5 2 1.5 1.5 Pensions, aged 6+ 2.86 2.3 1.71 1 1 1.29 1.11.87 Quartile 1 Quartile 2 Quartile 3 Quartile 4 29 214 6 52.6 5 4 3 2 1 14 8.9 1 1 3.2 1.3 3.3 Quartile 1 Quartile 2 Quartile 3 Quartile 4 29 214

Inequality-reducing effects of public transfers Per capita total public transfers relative to household income per capita, by income quartile, 214 In comparison to income level, the lowest income quartile households received proportionally much more 6. 5. 4. 3. This is especially the case for education and old-age support 2. 1.. 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 q1_214 q2_214 q3_214 q4_214

Adding together: Short and long term Regardless of fertility assumptions, population aging will push up social spending to around 15% of GDP by 235 and more than 25% by 255 Moving up the benefit ratio to OECD average could push up spending to more than 3% of GDP by mid 21-century Different fertility scenarios will start to have profound effects after mid 21 st century % of GDP 5. 4. 3. 2. 1. 215 22 225 23 235 24 245 25 255 26 265 27 275 28 285 29 295 21 Constant fertility, Fixed BGR High Fertility, Fixed BGR Instant replacement, Fixed BGR Low Fertility, Fixed BGR Medium Fertility, Fixed BGR Medium Fertility, Increase BGR

China after abundance? China s historical economic boom has entered a new era, with a slower growth rate Rapid income increase led to an enormous surplus, now also increasing at a slower rate Consumption growth began to catch up with labor income increase Share of prime-working-age labor income increased from 38% in 22 to 42% in 214 Public investment in education promises future growth Increased but unequal public transfers helped to reduce inequality Rapid population aging and welfare expansion impose serious fiscal constraints in the coming decades Slowing surplus growth, persistent inequality, and rising fiscal burden will define China s post-abundance era